Direct Method
The direct method records depreciation expense in accordance with the asset’s actual use. As of the asset’s disposal, any accumulated depreciation is included in the cost of the asset sold and is merely adjusted to the asset’s sales price. Examples: Advantages: Disadvantages: Additional notes: In general, the direct method is a straightforward depreciation method that […]
Break-Even Analysis
Break-even analysis is a financial technique used to determine the point at which total cost and total revenue are equal, resulting in no profit or loss. It is a fundamental concept in accounting and business planning that helps managers understand the relationship between costs, volume of sales, and profitability. Key Variables: Formula for Break-Even Point: […]
Time Value Of Money
The time value of money (TVM) is the concept that money today has a higher future value than the same amount of money in the future. This is because of the power of compound interest. Formula for Future Value: FV = PV(1 + r)n where: Formula for Present Value: PV = FV/(1 + r)n Explanation: […]
Asset Class
An asset class is a group of similar assets that are traded in the same market or have similar characteristics. They are typically used to describe investments in different categories of financial assets. Types of Asset Classes: 1. Equity:– Stocks (common and preferred)- Exchange-traded funds (ETFs)- Index funds 2. Fixed Income:– Bonds- Treasury securities- Government […]
Probability Distribution
A probability distribution is a function that assigns a probability to each possible outcome of a random variable. It is a fundamental concept in probability theory and statistics. A probability distribution is a function that satisfies the following conditions: Types of Probability Distributions: Key Components of a Probability Distribution: Importance of Probability Distributions: Examples: Conclusion: […]
Average Return
The average return is a measure of performance commonly used to describe the overall returns of an investment portfolio or asset. It is calculated by taking the sum of all the returns in the portfolio or asset over a given period of time and dividing that sum by the number of years in the period. […]
Trial Balance
Definition: A trial balance is a financial statement that lists all accounts in a company’s accounting system in alphabetical order, with their respective account balances at a specific point in time. It is a crucial intermediate accounting document used to verify the accuracy and completeness of the company’s accounts. Components: Purpose: Format: The trial balance […]
The Financial Times Stock Exchange Group (FTSE)
The Financial Times Stock Exchange Group (FTSE) is a global information services company that provides data, analytics, and news for the financial market. Its primary offering includes: Indexes: FTSE 100 Index – Tracks the performance of large companies in the UK. FTSE 25 Index – Tracks the performance of medium-sized companies in the UK. FTSE […]
R Squared
R-squared (Rยฒ) is a measure of how much variability in the dependent variable is explained by the independent variables in a regression model. It is a coefficient of determination that ranges from 0 to 1, with values closer to 1 indicating a better fit of the model to the data. Formula: Rยฒ = 1 – […]
Altman Z-Score
The Altman Z-score is a statistical tool used to assess the financial health of a company. It is based on the company’s current assets, current liabilities, quick assets, and retained earnings. Formula: Z-score = 0.5232 + 0.1999*X – 1.2824*Y where: Interpretation: Uses: Limitations: Additional Notes: FAQs
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